Student name:__________
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question.
1)
The material wealth of a society is a function of
A)
B)
C)
D)
2)
all financial assets.
all real assets.
all financial and real assets.
all physical assets.
_______ are real assets.
A)
B)
C)
D)
E)
Land
Machines
Stocks and bonds
Knowledge
Land, machines, and knowledge
3)
The means by which individuals hold their claims on real assets in a well-developed
economy are
A)
B)
C)
D)
E)
4)
investment assets.
depository assets.
derivative assets.
financial assets.
exchange-driven assets.
_______ are financial assets.
Version 1
1
A)
B)
C)
D)
E)
5)
_________ financial asset(s).
A)
B)
C)
D)
E)
6)
Bonds
Machines
Stocks
Bonds and stocks
Bonds, machines, and stocks
Buildings are
Land is a
Derivatives are
U.S. agency bonds are
Derivatives and U.S. agency bonds are
Financial assets
A)
B)
C)
D)
E)
directly contribute to the country's productive capacity.
indirectly contribute to the country's productive capacity.
contribute to the country's productive capacity, both directly and indirectly.
do not contribute to the country's productive capacity, either directly or indirectly.
are of no value to anyone.
7)
In 2018, ____________ was the most significant real asset of U.S. households in terms of
total value.
A)
B)
C)
D)
E)
Version 1
consumer durables
automobiles
real estate
mutual fund shares
bank loans
2
8)
In 2018, ____________ was the least significant financial asset of U.S. households in
terms of total value.
A)
B)
C)
D)
E)
real estate
mutual fund shares
debt securities
life insurance reserves
pension reserves
9)
In 2018, ____________ was the most significant financial asset of U.S. households in
terms of total value.
A)
B)
C)
D)
E)
real estate
mutual fund shares
debt securities
life insurance reserves
pension reserves
10)
In 2018, ____________ was the most significant asset of U.S. households in terms of
total value.
A)
B)
C)
D)
E)
real estate
mutual fund shares
debt securities
life insurance reserves
pension reserves
11)
In 2018, ____________ were the most significant liability of U.S. households in terms of
total value.
Version 1
3
A)
B)
C)
D)
E)
credit cards
mortgages
bank loans
student loans
other forms of debt
12)
In 2018, which of the following financial assets make up the second highest proportion of
the financial assets held by U.S. households?
A)
B)
C)
D)
E)
Corporate equity
Life insurance reserves
Mutual fund shares
Debt securities
Personal trusts
13)
In 2018, _______ of the assets of U.S. households were financial assets as opposed to
tangible assets.
A)
B)
C)
D)
E)
14)
23.5%
87.2%
28.4%
58.4%
71.6%
The largest component of domestic net worth in 2018 was
A)
B)
C)
D)
E)
Version 1
nonresidential real estate.
residential real estate.
inventories.
consumer durables.
equipment and software.
4
15)
The smallest component of domestic net worth in 2018 was
A)
B)
C)
D)
E)
16)
The domestic net worth of the U.S. in 2018 was
A)
B)
C)
D)
E)
17)
nonresidential real estate.
residential real estate.
inventories.
consumer durables.
equipment and software.
$9.350 trillion.
$22.642 trillion.
$32.539 trillion.
$72.683 trillion.
$80.983 trillion.
A fixed-income security pays
A) a fixed level of income for the life of the owner.
B) a fixed stream of income or a stream of income that is determined according to a
specified formula for the life of the security.
C) a variable level of income for owners on a fixed income.
D) a fixed or variable income stream at the option of the owner.
18)
A debt security pays
A) a fixed level of income for the life of the owner.
B) a variable level of income for owners on a fixed income.
C) a fixed or variable income stream at the option of the owner.
D) a fixed stream of income or a stream of income that is determined according to a
specified formula for the life of the security.
Version 1
5
19)
Money market securities
A)
B)
C)
D)
E)
20)
An example of a derivative security is
A)
B)
C)
D)
E)
21)
are short term.
are highly marketable.
are generally very low risk.
are highly marketable and are generally very low risk.
All of the options.
a common share of Microsoft.
a call option on Intel stock.
a commodity futures contract.
a call option on Intel stock and a commodity futures contract.
a common share of Microsoft and a call option on Intel stock.
The value of a derivative security
A) depends on the value of the related security.
B) is unable to be calculated.
C) is unrelated to the value of the related security.
D) has been enhanced due to the recent misuse and negative publicity regarding these
instruments.
E) is worthless today.
22)
Although derivatives can be used as speculative instruments, businesses most often use
them to
Version 1
6
A)
B)
C)
D)
E)
23)
attract customers.
appease stockholders.
offset debt.
hedge risks.
enhance their balance sheets.
Financial assets permit all of the following except
A)
B)
C)
D)
consumption timing.
allocation of risk.
separation of ownership and control.
elimination of risk.
24)
The ____________ refers to the potential conflict between management and
shareholders.
A)
B)
C)
D)
E)
25)
agency problem
diversification problem
liquidity problem
solvency problem
regulatory problem
A disadvantage of using stock options to compensate managers is that
A) it encourages managers to undertake projects that will increase stock price.
B) it encourages managers to engage in empire building.
C) it can create an incentive for managers to manipulate information to prop up a stock
price temporarily, giving them a chance to cash out before the price returns to a level reflective
of the firm's true prospects.
D) All of the above.
Version 1
7
26)
Which of the following are mechanisms that have evolved to mitigate potential agency
problems? I) Using the firm's stock options for compensationII) Hiring bickering family
members as corporate spiesIII) Boards of directors forcing out underperforming managementIV)
Security analysts monitoring the firm closelyV) Takeover threats
A) II and V
B) I, III, and IV
C) I, III, IV, and V
D) III, IV, and V
E) I, III, and V
27)
Corporate shareholders are best protected from incompetent management decisions by
A)
B)
C)
D)
E)
28)
the ability to engage in proxy fights.
management's control of pecuniary rewards.
the ability to call shareholder meetings.
the threat of takeover by other firms.
one-share/one-vote election rules.
Theoretically, takeovers should result in
A)
B)
C)
D)
E)
improved management.
increased stock price.
increased benefits to existing management of the taken-over firm.
improved management and increased stock price.
All of the options.
29)
During the period between 2000 and 2002, a large number of scandals were uncovered.
Most of these scandals were related to
I) manipulation of financial data to misrepresent the actual condition of the firm.
II) misleading and overly optimistic research reports produced by analysts.
III) allocating IPOs to executives as a quid pro quo for personal favors.
IV) greenmail.
Version 1
8
A) II, III, and IV
B) I, II, and IV
C) II and IV
D) I, III, and IV
E) I, II, and III
30)
The Sarbanes-Oxley Act
A) requires corporations to have more independent directors.
B) requires the firm's CFO to personally vouch for the firm's accounting statements.
C) prohibits auditing firms from providing other services to clients.
D) requires corporations to have more independent directors and requires the firm's
CFO to personally vouch for the firm's accounting statements.
E) All of the above.
31)
Asset allocation refers to
A)
B)
C)
D)
32)
Security selection refers to
A)
B)
C)
D)
33)
choosing which securities to hold based on their valuation.
investing only in "safe" securities.
the allocation of assets into broad asset classes.
bottom-up analysis.
choosing which securities to hold based on their valuation.
investing only in "safe" securities.
the allocation of assets into broad asset classes.
top-down analysis.
Which of the following portfolio construction methods starts with security analysis?
Version 1
9
A)
B)
C)
D)
E)
34)
Which of the following portfolio construction methods starts with asset allocation?
A)
B)
C)
D)
E)
35)
Commercial banks
Insurance companies
Investment companies
Credit unions
All of the options
Financial intermediaries exist because small investors cannot efficiently
A)
B)
C)
D)
E)
37)
Top-down
Bottom-up
Middle-out
Buy and hold
Asset allocation
_______ are examples of financial intermediaries.
A)
B)
C)
D)
E)
36)
Top-down
Bottom-up
Middle-out
Buy and hold
Asset allocation
diversify their portfolios.
assess credit risk of borrowers.
advertise for needed investments.
diversify their portfolios and assess credit risk of borrowers.
All of the options.
________ specialize in helping companies raise capital by selling securities.
Version 1
10
A)
B)
C)
D)
Commercial bankers
Investment bankers
Investment issuers
Credit raters
38)
Commercial banks differ from other businesses in that both their assets and their
liabilities are mostly
A)
B)
C)
D)
E)
illiquid.
financial.
real.
owned by the government.
regulated.
39)
In 2018, ____________ was(were) the most significant financial asset(s) of U.S.
commercial banks in terms of total value.
A)
B)
C)
D)
E)
loans and leases
cash
real estate
deposits
investment securities
40)
In 2018, ____________ was(were) the most significant liability(ies) of U.S. commercial
banks in terms of total value.
A)
B)
C)
D)
E)
Version 1
loans and leases
cash
real estate
deposits
investment securities
11
41)
In 2018, ____________ was(were) the most significant real asset(s) of U.S. nonfinancial
businesses in terms of total value.
A)
B)
C)
D)
E)
equipment and software
inventory
real estate
trade credit
marketable securities
42)
In 2018, ____________ was(were) the least significant real asset(s) of U.S. nonfinancial
businesses in terms of total value.
A)
B)
C)
D)
E)
equipment and software
inventory
real estate
trade credit
marketable securities
43)
In 2018, ____________ was(were) the least significant liability(ies) of U.S. nonfinancial
businesses in terms of total value.
A)
B)
C)
D)
E)
bonds and mortgages
bank loans
inventories
trade debt
marketable securities
44)
In terms of total value, the most significant liability(ies) of U.S. nonfinancial businesses
in 2018 was(were)
Version 1
12
A)
B)
C)
D)
E)
bank loans.
bonds and mortgages.
trade debt.
other.
marketable securities.
45)
In 2018, ____________ was(were) the least significant financial asset(s) of U.S.
nonfinancial businesses in terms of total value.
A)
B)
C)
D)
E)
46)
New issues of securities are sold in the ________ market(s).
A)
B)
C)
D)
47)
primary
secondary
over-the-counter
primary and secondary
Investors trade previously issued securities in the ________ market(s).
A)
B)
C)
D)
48)
cash and deposits
trade credit
trade debt
inventory
marketable securities
primary
secondary
primary and secondary
derivatives
Investment bankers perform which of the following role(s)?
Version 1
13
A)
B)
C)
D)
E)
Market new stock and bond issues for firms
Provide advice to the firms as to market conditions, price, etc.
Design securities with desirable properties
All of the options
None of the options
49)
Until 1999, the ________ Act(s) prohibited banks in the United States from both
accepting deposits and underwriting securities.
A)
B)
C)
D)
E)
50)
Sarbanes-Oxley
Glass-Steagall
SEC
Sarbanes-Oxley and SEC
None of the options
The spread between the LIBOR and the Treasury-bill rate is called the
A)
B)
C)
D)
term spread.
T-bill spread.
LIBOR spread.
TED spread.
51)
Mortgage-backed securities were created when ________ began buying mortgage loans
from originators and bundling them into large pools that could be traded like any other financial
asset.
A)
B)
C)
D)
E)
Version 1
GNMA
FNMA
FHLMC
FNMA and FHLMC
GNMA and FNMA
14
52)
The sale of a mortgage portfolio by setting up mortgage pass-through securities is an
example of
A)
B)
C)
D)
credit enhancement.
credit swap.
unbundling.
derivatives.
53)
Which of the following is true about mortgage-backed securities? I) They aggregate
individual home mortgages into homogeneous pools.II) The purchaser receives monthly interest
and principal payments received from payments made on the pool.III) The banks that originated
the mortgages maintain ownership of them.IV) The banks that originated the mortgages may
continue to service them.
A) II, III, and IV
B) I, II, and IV
C) II and IV
D) I, III, and IV
E) I, II, III, and IV
54)
________ were designed to concentrate the credit risk of a bundle of loans on one class
of investor, leaving the other investors in the pool relatively protected from that risk.
A)
B)
C)
D)
E)
Stocks
Bonds
Derivatives
Collateralized debt obligations
All of the options
55)
________ are, in essence, an insurance contract against the default of one or more
borrowers.
Version 1
15
A)
B)
C)
D)
E)
Credit default swaps
CMOs
ETFs
Collateralized debt obligations
All of the options
56)
The technology behind cryptocurrencies that is ideal for secure digital transactions is
called ______________.
A)
B)
C)
D)
E)
bitcoin
blockchain
distributed ledgers
ethereum
All of the options
57)
A major problem experienced by cryptocurrency, which makes it problematic to store
value is _____________.
A)
B)
C)
D)
E)
58)
distributed ledgers
blockchain
price volatility
transaction security
All of the options
Which country has banned initial coin offerings?
A)
B)
C)
D)
E)
Version 1
China
Germany
Japan
USA
All of the options
16
59)
The Economic Growth, Regulatory Relief and Consumer Protection Act of 2019
exempted smaller banks from which rule?
A)
B)
C)
D)
E)
Liquidity
Reserves
Demand deposit
Volker
All of the options
60)
According to the Economic Growth, Regulatory Relief and Consumer Protection Act of
2019 many larger banks are no longer considered ________________.
A)
B)
C)
D)
E)
Version 1
insurable
high risk
insolvent
systematically important
All of the options.
17
Answer Key
Test name: Chapter 01 Test Bank - Static
1) B
2) E
3) D
4) D
5) E
6) B
7) C
8) D
9) E
10) A
11) B
12) A
13) E
14) B
15) C
16) D
17) B
18) D
19) E
20) D
21) A
22) D
23) D
24) A
25) C
26) C
Version 1
18
27) D
28) D
29) E
30) E
31) C
32) A
33) B
34) A
35) E
36) E
37) B
38) B
39) A
40) D
41) C
42) B
43) B
44) D
45) A
46) A
47) B
48) D
49) B
50) D
51) D
52) B
53) B
54) D
55) A
56) B
Version 1
19
57) C
58) A
59) D
60) D
Version 1
20